Washington Editor

Research and discovery tools firm Invitrogen Corp. has agreed to buy Applied Biosystems Group, a subsidiary of Applera Corp. that develops and markets systems for analyzing nucleic acids, proteins and small molecules, for $6.7 billion in cash and stocks.

While shares of Foster City, Calif.-based Applied Biosystems (NYSE:ABI) rose 5.3 percent on the news Thursday, Wall Street's reaction was harsh for Carlsbad, Calif.-based Invitrogen (NASDAQ:IVGN), with the firm's stock tumbling 10.6 percent.

Applied Biosystems closed at $34.16, an increase of $1.72, while Invitrogen closed at $38.73, a loss of $4.62.

Invitrogen will pay $38 per share for Applied Biosystems, which represents a premium of 17 percent to the stock's closing price on Wednesday.

Invitrogen will pay 45 percent of the purchasing price in cash and the rest in stock, said CEO Gregory Lucier, who will take the reins of the combined company.

The cash portion of the transaction will be paid by cash on hand and about $2 billion in new debt, he told investors and analysts Thursday during a conference call. Total debt of the combined company will be about $3.5 billion, Lucier added.

Invitrogen shareholders will maintain a majority ownership of the new company, he noted.

The combined company will generate greater than 70 percent of its revenue from consumables and services. Following the close of the transaction, the combined firm will be named Applied Biosystems Inc., Lucier said.

"But we will maintain and build upon the great brand of Invitrogen for selling and merchandising high-quality reagents," he said, adding that there was a great deal of discussion about the selection of the combined firm's name.

"We believe that Applied Biosystems is a name that best describes a company that we hope to build - a systems company in the biological sciences that has an emphasis on taking technology from the research lab and applying it to commercial applications," Lucier said.

The transaction is expected to close this fall pending regulatory and shareholder approval, he noted.

Tony White, CEO of Applied Biosystems, which reported sales of about $2.1 billion during fiscal 2007, said his company has been through an extensive deliberative process over the past several months about its strategic options, which he said included continuing to make acquisitions and increasing the firm's portfolio, restructuring and remaining independent or selling to another company.

The merger, he said, is a "hybrid of the second and third options, as we are combining with a very complementary life sciences tools provider to create a new company that will have the strengths of each as well as synergies that will make the combination much more than the sum of its parts."

"I am excited about this powerful combination," White added.

Analyst Doug Schenkel, of Cowen & Co., said the merger was not a surprise, since speculation about a potential strategic sale of Allied Biosystems had been building ever since Applera confirmed its intent to unwind by midyear its tracking-stock structure between that company and its other operating group, Rockville, Md.-based Celera, a firm founded in 1998 by Craig Venter to sequence the human genome. Applera filed in February to separate itself from Celera.

The timing of Applera's plans was right for Invitrogen, which was eager to participate in the high-growth next-generation sequencing market, Schenkel said in a research note.

In fact, he said, during a first-quarter conference call, Lucier noted that his company had put a dedicated group of R&D and marketing personnel in place to focus solely on the partnership and product opportunities related to next-generation sequencing and that the company planned to be a key player in that area in the coming years.

"These comments led many to conclude that Invitrogen was evaluating ABI as a potential acquisition target," Schenkel said.

Schenkel noted that he had predicted the merger last month.

Moelis & Co. and UBS Investment Bank acted as financial advisors, and DLA Piper US LLP acted as legal counsel to Invitrogen. Morgan Stanley acted as financial advisor, Morgan Stanley and Greenhill & Co. provided fairness opinions to the board of directors and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal counsel to Applera.